Stress Test Results on European Banks; Tensions Between North, South Korea Over Joint U.S.-South Korean Military Exercises; Amphetamine Use on the Rise in Saudi Arabia

Aired July 23, 2010 - 16:00:00 ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

BECKY ANDERSON, CNN HOST: With overall results this good, you have to wonder if that stress test Fionnuala just mentioned was for real. Tonight, a rattled European banking industry under the microscope.

A very good evening. I'm Becky Anderson in London. They are called stress tests, and they are meant to see if Europe's banks can survive a worst-case scenario. Well, can they? To answer that question, joining me in the studio tonight, our own Jim Boulden with the outcome of those tests.

At Dartmouth college, one of our big thinkers, someone who calls it the way he sees it, David Blanchflower for you. And on Wall Street, where trading ended just moments ago, CNN's Carter Evans with a look to whether the investor out there has any better faith in a financial system roiled since the beginning of the year.

Also ahead this hour, it's the world's second-most commonly-used drug, and it is increasingly to be found in, of all places, Saudi Arabia. They explore why that is.

And burlesque comes to CONNECT THE WORLD with Dita Von Teese taking your questions tonight. She's your Connector of the Day.

Well, the results are in, and a whole lot of bank CEOs across Europe will be breathing a lot easier this evening. The stress test involved 91 European banks across 20 countries. And out of all of those, only 7 banks failed. Most of those were in one country, in Spain. However, they were all regional lenders, not big names you might have heard of, like Santander.

One was in Germany, Hypo Real Estate. Although that had already been taken over by the government. And the final was Greece's ATEBank. It also failed the worse-case scenario test.

So let's take a look beyond these numbers and find out what was really going on, why these tests were conducted, and what we know now. Let's start with Jim Boulden. Those seven failures aside, Jim, the EU president praising what he calls "the banks' resiliency," let's take a step back. What was the point of these tests?

JIM BOULDEN, CNN CORRESPONDENT: Well, you remember, the US did this last year, and the majority of the banks actually needed help after they had done this test with 19 banks. And then we had the problems in Greece, and Spain had a lot of worries about their banks.

So Spain said, we're going to stress test our banks, and then we're going to release that information to the public. And the rest of Europe was like, oh, wait a minute. If Spain does that, we'd better think about doing that, too.

So they all got together and decided, we need to restore confidence by giving people information, hypothetically, what would banks suffer, how would they suffer, and how could they -- would they need a lot of help if they went through these stress tests.

But then we didn't know what the stress tests were. We didn't find that out until 5:00 this afternoon London time. So now we know a little bit more about them, and there's a whole mixed reaction. Was it enough? Was it too little? Did too few banks fail? People said, we'd better see banks failing in Spain, or this test would be useless.

ANDERSON: Let me just play you some sound for Javier Ruiz of our Spanish affiliate, CNN Plus, who earlier explained why financial officials there are not particularly concerned with the results. Have a listen to what he says, and then we'll talk about it.

(BEGIN VIDEO CLIP)

JAVIER RUIZ, CNN CORRESPONDENT: In Spain, 95 percent of our banks were examined. They were put under the stress test. Therefore, you have more failures than the rest of Europe, where you have had 50 percent of the market share examined, but not the rest.

I'm guessing that this is not a big deal, and that's how it's taken here. The governor of the market here, the governor of the Bank of Spain, sorry, said, "We've been overlooking more banks than anywhere else, and therefore, we have more failures than anywhere else."

(END VIDEO CLIP)

ANDERSON: Hm. Interesting.

BOULDEN: Yes. You have to think about this. Some of the banks that passed the stress test only did because they got in so much trouble, like the ones in Ireland, that they were propped up by the government. So some of these banks aren't necessarily healthy, but they technically passed this test.

ANDERSON: All right, Jim, hold on with me for a moment. Carter, what impact, if any, did today's European results have on the markets? Because we know the investors have been pretty perturbed by the state of the European financial system, aren't they?

CARTER EVANS, CNN CORRESPONDENT: It was pretty interesting, Becky. There was a pop in the number initially. And the reaction on the floor -- this is what investors tell me -- was, "Great! Only a few banks failed." And then, people thought about this and said, "Wait. Things are pretty bad over in Europe, and only seven banks failed?" So they're very skeptical of these results.

Now, for instance, we've been talking about how bad things are in Greece for a long time. We've seen the riots in the streets over there. Only one bank failed. I think people are skeptical of these results. The worry is that the standards used to assess the European banks are not as stringent as the standards that were used on the stress test at the banks here in the US.

But, despite all this skepticism, stocks did start to surge about an hour after the stress test results were released. Investors had some time to digest the results of the test. But also, to look at exactly how the tests were conducted. And then, we're also seeing more solid earnings here, and GE also announced that's upping its dividend today. So all of that played into it, and we ended up much higher today, actually.

DAVID BLANCHFLOWER, DARTMOUTH COLLEGE: Well, my reaction was, these were very soft, gentle tests that a few had to fail. And surprise, surprise, they were in Spain. But when you look at -- I don't think it was really going to reassure the markets. I think this is -- I called it the first salvo. I suspect the second salvo will be on Monday, when people have had a chance to look through all of this.

I imagine in the US we have these kinds of stress tests, and the produce them at 5:00, just as the market closed, on a Friday afternoon, when people didn't have a chance to really look at them. So I think that's the first salvo.

The second salvo will be, as I say, Monday. The third one's going to be when they start to produce their results over the next three months. And we may well see that this stress test look pretty weak, pretty low- hurdle to get over, and not very convincing. I thought it was much ado about nothing.

ANDERSON: David doesn't seem to think these are particularly special --

BLANCHFLOWER: Not that there's nothing going on. Just that the test was --

BOULDEN: David, didn't we think -- didn't some people think this when the US stress test came out? And didn't some people criticize it? And now, many people would say that that was actually the kick-start to a pretty decent recovery in the financial market.

BLANCHFLOWER: Well, I think so. I think so, but if you start to look, there were more details produced by the banks. It took a while for the numbers to come out, and I've been going through them. And Lloyd's Bank, the first one on my sheet, there's one page. There's not very much actually of information here. That's the first thing.

And then, I think the sort of macro-test that they've imposed is a very weak one. Their adverse scenario for the EU is actually that 2011 GDP is minus .2. Well, what if it's minus 2 or minus 3? That's the first thing.

Second, they've imposed kind of common characteristics across countries. Well, if the yield code rises on average by .75, it might rise by 500 points in one country and nothing in another. So, those tests look pretty loose.

So, at this moment -- Well, what about other things, like perhaps you'd find house prices will collapse in one country and not another? So this is yet to be seen. I think this is a very bland set of tests, pretty --

ANDERSON: All right, all of you. David, David, OK, I --

BLANCHFLOWER: Pretty unlikely any serious bank wouldn't get through them.

ANDERSON: I hear what you're saying. Are we any clearer about the ability of the European banking crisis to withstand another crisis? That was the point, surely.

BLANCHFLOWER: No.

ANDERSON: Are we any clearer, David?

BLANCHFLOWER: I don't think we are any clearer to it. This is people trying to calm nerves, trying to sort of say, "Oh, well the tier ratios are OK." But we don't really know about -- What would happen if there's a sovereign default? Supposing Greece was to default? There's no calculation of that. The assumptions about sovereign debt are very bland, very unlikely to be true if some of that happens.

So I think, if you think about adverse scenario, the adverse scenario is GDP of minus .2 percent. Well, how adverse is that?

ANDERSON: To regulators is the history of fudged figures that led to the latest crisis. And, of course, starting with Greece with the nation's deficit numbers. Does the investor on Wall Street care? I mean, who's to say that these numbers were any good? Do you agree with what David's saying? Have we learned anything today?

EVANS: Well, I don't know that we've learned a whole lot. I think that there was a psychological impact of these stress test results. But it is really hard to compare them exactly to the stress test that occurred here in the US. With one over in Europe, we're dealing with several different countries, and banks in different countries.

In the US, these were banks all in one country. As a result of the stress test here in the US, the banks had to raise capital. That certainly helped out a lot. And we knew that going into the stress test as well. We knew that the banks that failed the stress test here in the US would need to raise capital to bring them up to par. And that's what happened.

And it was kind of a turning point here in the US. And I'm not seeing that, at least right now, about these stress tests in Europe.

ANDERSON: Jim.

BOULDEN: I'm going to be a bit more patient and wait, because the ultimate to this --

EVANS: I agree with that.

BOULDEN: Is will the banks begin to lend money to each other and not need to go to the ECB, the European Central Bank, to get their funding. And if they start to feel confident with each other and start to loan again, then you have to say there has to be some success to this.

ANDERSON: So, I want to know from each of you --

(crosstalk)

ANDERSON: Hang on a minute. The viewers watching this tonight will be saying, "I want to know whether I'm safer with my European banking system tonight than I was, say, last year, the year before, and the year before that. What is the answer to that question? David.

BLANCHFLOWER: Well, certainly, compared with five or six years ago, these banks are much less safe than they were. Banks are not really lending to each other. This was an attempt to try and show on certain criteria that the banks were OK, but I'm not convinced by it. I don't think the markets are. I don't think suddenly Monday people are going to wake up and say how great this is. I think this is just an opening.

So I think the answer is that banks are not as safe as they were in the past, they're not lending to each other. This is a crisis that's nowhere -- there's no way over yet.

ANDERSON: Carter?

EVANS: Yes, I'd agree. What we do know after this is under a very specific set of rules, that several of these banks, or the majority of these banks would survive. But this is very, very specific. The rules that they used to engage these stress tests.

So, on that note, if these particular instances were to occur, I guess we could assume they were a little bit safer. But on a broader picture, I don't think we're any better off.

ANDERSON: I know that David earlier on said that the only stress in the stress test was waiting for the results to come out. I know you were speaking to one of my producers, David Blanchflower, earlier on, and that was where he saw the stress. Jim.

BOULDEN: For me, really, there was no surprise, no shock. There wasn't the name that might have been, "Oh, my God, that bank in that country didn't fail?" Many people thought at least one bank in Portugal would have to fail this test, and they did not. So you have to say, we haven't learned anything new about the big banks. These were not big banks that failed.

ANDERSON: Fascinating stuff. Guys, we're going to have to move on. We thank you very much, indeed, for joining us. David Blanchflower at Dartmouth University, Carter Evans on the floor of the Exchange on Wall Street, and Jim, as ever, pleasure to have you on the show.

BOULDEN: Great.

ANDERSON: If you want to get your voice heard on CNN, head to the website, cnn.com/connect. And don't forget to let us know where you are writing to us from. We always enjoy that. You can tweet me @beckycnn, of course.

Next on the show, tensions escalate on the Korean peninsula. Pyongyang steps up its defiance as it forges ahead with a plan -- well, what's this plan? We're going to ask what the Communist state is up to after this.

(COMMERCIAL BREAK)

ANDERSON: A region that we have been monitoring here on CONNECT THE WORLD gets added legs today. The saber-rattling on the Korean peninsula growing louder. Pyongyang has threatened a physical response to a massive military drill that's to be carried out by American and South Korean troops in the Yellow Sea on Sunday.

But amid the military threats, US and Asian diplomats are holding well-timed talks. Dan Rivers joining the dots on what is a key issue.

(BEGIN VIDEOTAPE)

DAN RIVERS, CNN CORRESPONDENT (on camera): Foreign ministers from 27 countries will be attending this ASEAN regional security forum. Brings together nations of southeast Asia along with China, the US, Japan and, crucially for these talks, North and South Korea.

And it's the tensions on the Korean peninsula which are expected to dominate these talks. They come just a couple of days before big military exercises conducted by South Korea and the United States, which the North Korea has condemned, saying that it's a violation of their sovereignty.

The US Secretary of State Hillary Clinton will be present and is all- too aware of the chance that this presents to, perhaps, restart talks with North Korea since the six-party talks have been stalled since December 2008.

North Korea opened up the possibility off more talks on nuclear disarmament, saying it would only happen if they were done on an equal footing, that sanctions would have to be lifted before any six-party talks could get underway again. That was immediately rejected by the South Koreans.

But in a separate development, senior US officers under the UN command met with their North Korean counterparts in the de-militarized zone between North and South Korea today. This was the second time that they'd had these talks. It's thought they may pave the way for talks between generals of both sides at some future date. We still haven't got the detail of what was discussed there.

The other subject that will be a hot topic at this ASEAN regional forum will be Myanmar and the elections that are scheduled to happen there. The US saying -- voicing its concern that those elections may not be free and fair. They're of course being boycotted by the main opposition party in Myanmar.

And concerns also raised by the US about Myanmar's links to North Korea, about shipments of weapons that have gone from North Korea to Myanmar, and the possibility that North Korea is collaborating with the Burmese military regime to help them try and develop a nuclear bomb. Sam Rivers, CNN, Bangkok.

(END VIDEOTAPE)

ANDERSON: Well, with North Korea facing this increasing pressure, just how serious should the international community be taking its latest threat? A physical response is what Pyongyang has pledged. So we asked former South Korean foreign minister Han Sung Joo for what he thinks that means. Have a listen to this.

(BEGIN VIDEO CLIP)

HAN SUNG JOO, FORMER SOUTH KOREAN FOREIGN MINISTER (via telephone): Usually this is related to developing and upgrading their nuclear capability. So the person who also made the statement is in charge of so- called disarmament or arms control, so I would think it has something to do with their nuclear program.

(END VIDEO CLIP)

ANDERSON: All right. And we're going to delve a little deeper into this issue after the break. I want to find out whether North Korea really does pose an aspiring threat as a nuclear state. John Feffer, who is the co-director of Foreign Policy in Focus at the Institute for Policy Studies joining us after this.

(COMMERCIAL BREAK)

ANDERSON: As I suggested before the break, some saber-rattling in the Korean peninsula. Let's delve a little deeper into the threat that North Korea poses as an aspiring nuclear state. To turn to John Feffer, who is the coordinator of Foreign Policy in Focus at the Institute for Policy Studies and is among an alliance of scholars who give advice on Korea.

Let me start with a very simple question, and one, perhaps, our viewers are still asking themselves. How big a threat is North Korea?

JOHN FEFFER, FOREIGN POLICY IN FOCUS: North Korea is of course a threat to South Korea. South Korea is very close to North Korea, North Korea's artillery can, of course, destroy Seoul.

North Korea is in some sense a threat to Japan. Its missiles can reach Japan.

But beyond that regional threat, North Korea doesn't provide much of a threat to the rest of the world, except, perhaps, through nuclear proliferation. Proliferation of the nuclear material it has.

ANDERSON: And how close are they? Or what do they have?

FEFFER: We don't exactly know. They've of course conducted two tests. The first test was a failure. The second test was a little better. But we don't really know whether they've managed to weaponize in any real sense. We don't know, really, how much material they have, their ability to deliver that material.

ANDERSON: Right. Yes, sure, all right.

FEFFER: No, I don't think they're about to pass the test.

ANDERSON: I was hoping you might say that, because I'm wondering what the current strategy of sanctions really does. Is it working, or should the world be engaging more with the regime in Pyongyang?

FEFFER: The sanctions have not really accomplished what we've hoped that they'd accomplish. In other words, North Korea hasn't given up its nuclear material, it hasn't negotiated the nuclear weapons away. It hasn't embarked on any significant economic reform. It continues to purge and in some cases execute reformers within the system. So the sanctions in some sense seem to be counter-productive.

Engagement, on the other hand, in the past has encouraged some measure of economic reform, has pushed forward some technocratic reformers within the system. At the moment, it might be a little difficult to push for reform in the wake of the Cheonan, the sinking of the South Korean ship.

But ultimately, I think that is the wisest course of action.

ANDERSON: How close is this country to regime change at this point?

FEFFER: In a technical sense, it's probably very close to regime change in the sense that Kim Jong, the leader, is quite old, and he's already passing the baton onto his youngest son. But, of course, that's not a meaningful regime change. It's only change in leadership.

If we look at where there might be a Gorbachev in the system, or even more radically, a dissident, like Andrei Sakharov, they're not in the wings. Not that we know of. The only institution that has any real power, aside from the Communist party is the military. And it's unclear whether the military would have any more reformist elements within it.

So, for the time being, what we have in North Korea is what we will have. And that is a concern that, for instance, China has. It doesn't want to see a regime collapse, for instance, in North Korea, because that would have devastating impact on the region and, more particularly, on China.

ANDERSON: Yes. Remind us. Let's just talk about China for the moment. Remind us why China cares so much about what happens in North Korea.

FEFFER: Of course, North Korea is on the border of China. And China's economic reforms, its economic growth, its double-digit economic growth, is dependent on regional stability. It's also dependent on having the northeast part of its country stable as well.

It relies to a certain extent on North Korea for minerals, also for access to ports. And it doesn't want to see, for instance, hundreds of thousands of refugees coming from North Korea into China. It doesn't want to see a war in the region. Nor does it really want to see economic collapse, because that could endanger, jeopardize China's economic future.

So China's acting in its national interest in terms of supporting North Korea, even though the Chinese leadership is not crazy about North Korean actions. They don't want North Korea to have nuclear weapons. They don't want North Korea to go around torpedoing ships.

But China's making a very pragmatic decision in supporting North Korea economically.

ANDERSON: Very brief now, we're going to have to take a short advertising break at this point. Very briefly, what happens next?

FEFFER: Right now, we're in a kind of wait-and-see period. South Korea and the United States are conducting military exercises. North Korea is, again, under a wide variety of sanctions. I don't see anything happening positively in the next few weeks.

But I hope when tempers cool, and North Korea, perhaps, has a chance to look at the evidence linking it to the sinking of the Cheonan, we might see the resumption of some sort of engagement, some form of regional or bilateral dialogue with North Korea.

ANDERSON: And with that, we'll leave it there. John Feffer with you on CONNECT THE WORLD this evening, your expert on the subject. John, we thank you for that.

We're going to take a look now at a drug problem found around the world. We're taking a complete left turn for you here, keep up with me. What surprised us and made us want to probe the connections a little deeper on this story is where this problem appears to be growing the fastest.

Now, it concerns amphetamines. The UN Office on Drugs and Crime describes amphetamines as the world's second-most commonly-used drug. It estimates that as many as 53 million people around the world used amphetamines in 2008.

But what caught our attention is that the Middle East emerging as a major market. The Middle East in particular, the kingdom of Saudi Arabia. Authorities there confiscated nearly -- get this -- 13 metric tons of amphetamines in 2008. That is more than half the global total seized that year.

The unfortunate truth is that amphetamines is just one drug that experts are seeing abused with growing frequency throughout the Middle East region. So we wanted to find out what's going on behind this trend. We're going to go straight to the source of the findings. I'm joined from Vienna by Matthew Nice. He's drugs expert with the UN Office on Drugs and Crime.

We were surprised by these findings. Were you?

MATTHEW NICE, UN OFFICE ON DRUGS AND CRIME: Yes. Well, we've been actually tracking the increase over the last year or two specifically related to the amphetamines growth in the Near and Middle East. But the phenomenon that we're seeing is really globally. We've been really watching increases in amphetamines across the world for the last decade.

So there's some little surprise that it's happening there, because it's happening in so many other places as well.

ANDERSON: Why?

NICE: Well, one reason is that the drugs themselves are so cheap to manufacture and so readily available. You can get them in some places for as little as a couple of dollars per pill. Which is the common form that we tend to see in the Near Middle East.

ANDERSON: What are you doing about it?

NICE: Currently, what we've got is we've got a UN ODC program called the Global Smart Program, which focuses solely on the rapidly changing synthetic drug problem throughout the world. And what we try to do is raise awareness and build capacity in those countries that have the most substantial synthetic drug problem, so that they're able to recognize the difficulties of this particular drug and how to respond to it.

ANDERSON: So what are you doing, for example, then, in Saudi?

NICE: Currently, the program operates in southeast Asia in 11 countries. It operates now in Latin America and in parts of the Pacific. So the Near and Middle East is a section on our expansion program that we're looking to expand into.

But clearly, as you can see from the information that we have, based on the seizures and the treatment numbers, that this area is in need of increased help related to synthetic drugs.

ANDERSON: Why are you so far behind the curve, out of interest? Why are you only now getting there?

NICE: That's a good question. One of the issues for us has been the difficulty with really being able to identify this particular drug. A lot of people consider this drug, maybe, a pharmaceutical, or not that dangerous. And clearly, the focus in the region has long been on opiates.

So, as this has kind of taken off, we're playing catch-up to some degree, because the focus has been on so many other things.

ANDERSON: How dangerous are amphetamines, out of interest?

NICE: They don't have the reputation of overdose and death that you might see, for example, with opiates and heroine. But certainly, they're extremely dangerous. We see treatment numbers going up very high. People do overdose from them. They tend to raise people's blood pressure, body heat, and things like that.

ANDERSON: Pleasure to talk to you. We'll no doubt speak to you again at some point. Matthew Nice on the story this evening.

Lots of comments coming in on this on cnn.com. Cdp1942 asks, "How bad can amphetamines be when millions of our kids are given daily doses to control their behavior?" Interesting, isn't it?

SilasDaRock says, "If the US tries to teach them how to fight a war on drugs, it guarantees they'll never solve it."

Read the article, take part in the discussion, it's all at cnn.com/international.

Can a power-sharing deal survive in Zimbabwe? The country's rival leaders say they are committed to a unity government, but political violence and intimidation is on the rise. I'm going to talk to Zimbabwe's deputy prime minister next, here on CONNECT THE WORLD.

(COMMERCIAL BREAK)

ANDERSON: You're back with CONNECT THE WORLD here on CNN. I'm Beck Anderson in London at 31 minutes past nine here in the UK.

Coming up, trouble brews in Zimbabwe. We're going to take a look into reports of increasing political violence and doubts over whether democratic change is still on track.

Then it's cocktail hour as we take a risque twist with the beautiful, the burlesque, Dita Von Teese. Find out how the glamorous siren is putting charity at center stage.

And then, how does a dog -- how does a stray dog, sorry, end up on the cat walk? We're going to head to Sri Lanka to see who is turning unwanted mutts into pampered fashion pooches.

Those stories are ahead for you in the next 30 minutes. First, let me get you a very quick check of the headlines here on CNN.

Ninety-one European banks under the gun. Eighty-four of them pass European Union's so-called stress test. It's aimed at preventing a future credit crisis like the one that sparked the global recession. Five of the failed lenders are in Spain. The others are in Germany and in Greece.

Two days before the US and South Korea launch joint military maneuvers off the Korean peninsula, North Korea is rattling some sabers of its own. Pyongyang is warning of a physical response should the exercises begin. The four-day maneuvers are set to start on Sunday.

Tropical Storm Bonnie whirled across the southern tip of Florida a few hours ago. It's now in the Gulf of Mexico. Bonnie expected to make landfall in the Louisiana area on Saturday evening. The storm has interrupted cleanup operations of BP's fractured well. Vessels have been ordered to evacuate, and crews are clearing out.

News reports say that the Chinese government is taking new safety measures at ports after a pipeline explosion there caused the biggest oil spill in recent history. Chinese authorities say improper chemical injections caused the blast at a storage facility.

We have a story for you this evening, and an important one. Political tensions in Zimbabwe. A fragile agreement linking the African nation's rival parties may be hanging by a thread. The power-sharing deal between President Robert Mugabe's ZANU-PF party and the opposition Movement for Democratic Change. Fractions is scheduled to end next year.

ZANU-PF says there is no reason elections won't happen, but there have been reports of increasing political violence and intimidation of opposition supporters. All this as Zimbabwe is in the midst of drawing up a new constitution.

In December of last year, Christiane Amanpour spoke with Mr. Mugabe himself. She asked him about Zimbabwe's descent into immense poverty over the last decade, and allegations that he had turned a country that was the breadbasket of Africa into what others called a basket case. And here's what Mr. Mugabe had to say.

(BEGIN VIDEO CLIP)

ROBERT MUGABE, PRESIDENT OF ZIMBABWE: Over the last ten years, we have had ZIDERA. Sanctions imposed upon us by the United States. Plus sanctions imposed upon us by the European Union. Over the last ten years - -

MUGABE: No, no, no, no. The United States' sanctions on us are real sanctions. Economic sanctions. Have you looked at them? Look at them and you will satisfy yourselves that prevent companies from having any dealings with us.

AMANPOUR: But they're very, very specifically targeted --

MUGABE: The prevent any financial institutions.

(END VIDEO CLIP)

ANDERSON: OK. Well, that was Mr. Mugabe speaking to Christiane Amanpour. Our next guest is in London with me. Here he's been wooing investors and donors to help with his country's economic recovery . Zimbabwean Deputy Prime Minister and opposition MDC member Arthur Mutambara joins me here in the studio.

Before we move on, you've just seen, European banks have been through their own stress tests of late. It isn't that good here, but it's certainly, probably better than it is or certainly has been in Zimbabwe for the past few years. Arthur, how did investors respond to you here?

ARTHUR MUTAMBARA, DEPUTY PRIME MINISTER OF ZIMBABWE: Very cautious, but they're optimistic. We've brought political stability into the country. People who were fighting each other three years ago are now in the same government.

We have brought economic stability to the country, from half a billion percent inflation to three percent. We are now open for business, and we are emphasizing that, when you come to Zimbabwe, you are coming as a business person, you make a profit, if it's about what you're doing for charity, we have the highest natural per capita index, natural resource per capita index in the world.

In terms of potential, we're in the top 40 in terms of our minerals. Diamonds, we are poised to control 25 percent of diamonds in the world.

So yes, we've had problems, but we are turning the corner. We have brought into the country a new disposition. Yes, we've had challenges. It's never easy to run a country using a coalition government.

ANDERSON: No, it isn't.

MUTAMBARA: It's not the best way.

ANDERSON: We know that here. But let's talk about that unity government, because anybody who wants -- and everybody wishes the country the best, I'm sure, and I'm sure there's very few people that wouldn't. But people also want to see a country that is politically stable before they invest in it. And you in the past have called for the international community to support the new unity government. Without equivocation, you say.

But you've also called the agreement, the unity government agreement, and I quote you, "flawed and imperfect." Is it?

MUTAMBARA: Very correct. It is a very flawed arrangement, it's a major compromise.

ANDERSON: What are you going to do about it?

MUTAMBARA: It is the best short-term answer to extricate our country from its current situation. Six things we're going to do. A new constitution, national healing, media reforms, electoral reforms, political reforms, economic reforms.

If we do those six things, we'll create conditions for freeness and fairness for our country in terms of elections. We'll also drive Zimbabwe towards a peaceful, prosperous, and democratic nation.

We are having problems, but on balance, we've made progress.

ANDERSON: All right, let's get serious here, then. How do you get on with ZANU-PF and Mugabe? I mean, in May, just in May this year, just a month or so ago, you called the agreement -- of the agreement, you said, "It's a war. It's a war of attrition." You don't get on with ZANU-PF. You certainly don't get on with Mugabe, do you?

MUTAMBARA: That is the definition of a coalition government, of people who are fighting each other. In other words, we are negotiating and fighting on every issue. But on balance, we are putting the national interest before the partisan interest.

It is in the Zimbabwean national interest for the two of us to work together. And slowly but surely, we're making progress. We've set up a commission of the media. We're setting up new newspapers in the country. We've set up a human rights commission, we'll put together an electoral commission. Slowly but surely, we are creating conditions for free and fair elections.

ANDERSON: And there's no doubt about that. Personally, I watch what's going on with the media, and the transformation has been quite remarkable over the last six to nine months. But what happens after going forth? Do you lay out what you want? What is realistic? What is achievable? And what will happen next year?

MUTAMBARA: I think between now and next year, we'll be able to put together a national constitution. But it won't be sufficient time for us to have these reforms take root. So it's not practical, actually, to be having elections next year.

Remember, we are in this --

ANDERSON: You don't want elections next year?

MUTAMBARA: No, it's not what I want. It's what is practical, to answer your question. Remember, we are in this arrangement because our elections were problematic. Our elections were not free and fair. If we rush into an election next year, we're going through -- we're going to go through a cycle.

Remember, the question Zimbabwe should be, what is the caliber and quality of our next elections? We need more time. So most probably, our elections are going to be in 2012, or even in 2013. We are not interested in rushing the country into a fraudulent election.

ANDERSON: Meanwhile, is Zimbabwe a country that the diaspora wants to get back to? We only watched what was happening on the border with South Africa, and there was an awful lot of problem around that emigration from the country. Are you -- and I haven't been, so I certainly haven't been recently. Are you seeing the return of people who matter?

MUTAMBARA: Two things. We want Zimbabweans in the diaspora to participate in our economy even when they're external. That's why we're in London to do this conference. The Zimbabwean engineers are the ones who organized this meeting we had today. So we want their admittances, we want access to their knowledge, we want them to be our ambassadors, our advocates for the country.

But also, we want a critical mass to come back home to be part of the change agenda. So we are also trying to address their own concerns. We should allow dual citizenship for our people. We must allow them to vote in our elections. So we want the people in the diaspora to be full citizens of our country.

ANDERSON: Let me ask you one question. Does Zimbabwe have a future while President Mugabe remains in power?

MUTAMBARA: We've made a decision as Zimbabweans to work together. Mugabe is part of the solution in our country. In the same way De Klerk was a part of the solution with Mandela in South Africa. If Mandela and De Klerk could work together to usher new -- a new disposition in South Africa, why can't Tsvangirai and Mugabe do the same in Zimbabwe?

Yes, it's possible. We want to transition Zimbabwe into a peaceful, prosperous, and democratic Zimbabwe. And Mugabe and ZANU-PF are part of the solution. Unfortunately.

ANDERSON: We'll have to leave it there, then. Thank you for joining us, and I look forward to speaking to you again.

MUTAMBARA: I thank you very much.

ANDERSON: She's turned teasing into a career. Now, Dita Von Teese turns her considerable assets towards the fights against HIV-AIDS. She is your Connector of the Day, and she is coming up after this.

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ANDERSON (voice-over): Dita Von Teese has been the biggest name in burlesque for a generation. She tops international best-dressed list and is credited with bringing back the glamour and allure of old Hollywood stars.

Famed for her adult performances, in which she bathes in a giant cocktail glass, Dita brings classic pinup imagery to life.

She's also used her risque routines to charitable ends. A fierce advocate in the fight against HIV and AIDS, she's lent her support to the MAC Viva Glam campaign, led by Nancy Mahon.

NANCY MAHON: CEO, MAC AIDS FUND: We bring $30 million, literally, in about ten months. That's a lot of lipstick, $14 at a time. Or, 12.5 euros at a time. So what we're seeing is that women care. And we're hoping -- The bottom line for them, though, is it's guilt-free shopping. All the money goes to AIDS, and they get a great product. But what we're very -- really hoping is that other companies will follow suit.

ANDERSON (voice-over): And recently performed at a charity concert at the World AIDS Conference in Vienna.

ANDERSON: And they don't get more glamorous than this, do they? I caught up with Dita a little earlier on. And I began by asking her a question from one of our viewers, Isabelle, about the MAC AIDS fund and why she's chosen HIV and AIDS as a cause to support. This is what she told me.

(BEGIN VIDEOTAPE)

DITA VON TEESE, BURLESQUE ARTIST: I heard about this Viva Glam lipstick, and I heard that I could buy a Viva Glam lipstick, and every penny that I paid for the lipstick would go to the MAC AIDS fund. And it made a big impact on me, this campaign with Ru Paul, in so many ways.

And so, all these years later, when I was actually asked to be a spokesperson, it was -- I was overjoyed at the chance to get the message out about this lipstick and the power of it. And I'm -- I clearly love lipstick, and so I love it even more when it's raised $180 million. That goes to help people.

ANDERSON: It is an amazing campaign. And I was talking to its leader in Vienna last week. I know that you were also at the AIDS conference in Vienna a week or so ago. Anything that you heard there that really inspired you and that made you feel like we were really sort of on our way to nailing this epidemic?

VON TEESE: Well, I think it's just really amazing to be at these events where people are coming together and bringing up awareness, and I really wanted to get the message across about the empowerment issue, and how important it is to stand up for yourself and not to be afraid, to insist on safe sex, or to carry condoms. And it's just really important to tell women that it's OK to do this without feeling bad or guilty.

ANDERSON: What prompted you to transform yourself from what was a naturally blonde midwestern girl from Michigan, as I understand it, into a Hollywood glamour girl of the old style?

VON TEESE: I grew up watching old movies with my mother, and I remember watching these big technicolor musicals with Betty Grable and Rita Hayworth and Marilyn Monroe and really watching all this color and vibrancy, and the red lips and the rosy cheeks. And just falling in love with that image.

And I love the idea of the big Hollywood makeover. And I taught myself to do that for myself. I liked the idea of transformation and I like glamour. And to me, the most iconic, glamorous women throughout history, they were really created.

ANDERSON: Do you feel as if you were born into the wrong era, to a certain extent?

VON TEESE: Not really. I really feel like I like being a part of this era. I like that there's a shift in who the fans of burlesque and pinup are and the way that it's changed since the 1930s and 40s when the audiences were predominantly male.

But I've always loved the message of burlesque, that all the stars of burlesque, like Gypsy Rose Lee and Sally Rand. They were self-created and they were business women, and they created their own show and styled themselves. And I liked that idea. And so, that's one of the things I love about burlesque now is even more than ever, it's sort of women creating and being and enjoying this burlesque moment.

ANDERSON: Benim from Finland asked a very interesting question. He says he's heard you criticized for objectifying the female body. And he says, "What's your view on the importance, role, and relevance of femininity and masculinity in the contemporary world? Should they matter, and if they should, when and where?"

VON TEESE: Well, it's a very complicated argument when people accuse me of being anti-feminist or that I'm being exploited because I perform a strip tease. It becomes a much more complicated argument when you really look at what my world is and who my fans are and who the people who come to see my shows are.

So I think it's a little bit dismissive to just say that's exploiting women or that I'm being exploited. It's much more complicated than that.

ANDERSON: Peter from Sweden asked a very interesting question. He says, "Will you continue for many years with this burlesque work?" he says. "And thereby show the world that it's not just a young woman's game. Or do you have plans to do something else as the time goes on?"

VON TEESE: One of the things that I think people forget about what I do is, I'm not just a girl that someone gives me a show and gives me the costume, and here's the music, here's the choreography, and we're going to put pretty lights on you. Go out and do your dance like this.

I create the shows from top to bottom, from the styling to the music to the lighting, and really, I feel like that's what I do best. I'm certainly not the youngest, prettiest, best dancer, most talented person. It's just that I'm good at styling and I'm good at creating these shows. And that's really what burlesque has always been about, is self-creation.

So I think that, though, my ideal is to sort of still continue to create shows and not necessarily star in them.

ANDERSON: Edgar Cuevera from Mexico City wants to ask you what you think your strongest inner inspiration is?

VON TEESE: My strongest inspiration, I think, is really about creating fantasy. And when the curtains open on a show, that it's something from another world and another time, that exciting feeling that it's still live entertainment, and I'm usually thinking about, what's that thing that's going to go wrong this time, and how am I going to deal with it? It's really a big part of live entertainment that I love, is that when things -- anything can happen, and it's really about what you're going to do when it does happen.

ANDERSON: "Vanity Fair" has recently called you a "burlesque super heroine." How do you feel about that? Is that what you are, do you think?

VON TEESE: It makes me want to put on a rhinestone cape, I'll tell you what.

(END VIDEOTAPE)

ANDERSON: Dita Von Teese.

It's been a big week of big names here for you on your Connector of the Day segment, your part of the show. And there are more in store next week. Monday's Connector is one of the world's most recognizable diplomats. Richard Holbrooke is currently the US special representative for Afghanistan and for Pakistan under the Obama administration. He's played a role in high profile politics for decades, helping to broker peace in Bosnia and in the Balkans in 1990, the mid 1990s.

Your part of the show. Of course, to start sending in your questions, do remember to tell us where you are writing in from. Head to cnn.com/connect and let us know who you want to see as your Connector of the Day.

Tonight, we'll be right back.

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ANDERSON: All this week, our show has pretty much gone to the dogs. The theme has been pets. Monday, we measured their carbon paw prints and their link to greenhouse gases. Speaking of gas, cows and sheep, apparently, give off plenty of it. You know what helps lower methane, though? It's curry.

On Tuesday we took a look -- a stomach-churning look at China's appetite for cat and dog meat. Wednesday's focus was New York's booming pet care businesses, and yesterday we examined a dog's life in Japan. For some, their life couldn't be better. For those, though, that are abandoned, their fate is a death sentence.

And today, the dog is finally having its day in Sri Lanka. It's time to wrap up our week with that story from Sri Lanka. It starts out as a bit of a doggie downer. Strays from the streets in many cities there. But as Rosemary Church tells us, a leader of Sri Lanka's fashion community has made it her business to turn strays into fashion statements.

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ROSEMARY CHURCH, CNN CORRESPONDENT (voice-over): Stray dogs are everywhere you look in Sri Lanka. Eating trash, sleeping on roads, these animals have made the streets their home. This makeshift tarp the only protection from the blaze of the midday sun. They're often malnourished and sick, but their population continues to grow.

OTARA GUNEWARDENE, FOUNDER, EMBARK: They're also called "community dogs" because they're looked after by people in the community. But there are many.

CHURCH (voice-over): Still, street dogs often have to fend for themselves, rarely finding acceptance as pets. Three years ago, fashion icon Otara Gunewardene founded Embark, a nonprofit group that's taking a new approach to the problem.

GUNEWARDENE: One of the main things that Embark has also tried to focus on is to make the stray dog fashionable so that more people would care for the dogs, more people would adopt dogs, and make them something that everyone would like to own.

CHURCH (voice-over): Giving the street dog a makeover. At Colombo's Fashion Week earlier this year, dogs dominated the catwalk, modeling Embark's first clothing and accessory line. Gunewardene, who's better known by her first name, Otara, also owns one of Sri Lanka's biggest department stores.

GUNEWARDENE: The mascot of Embark is Niko, who is my dog. I found him down my road when he was very, very small. And he's actually turned out to be quite a star, now, in Sri Lanka, and is quite famous, and he's recognized wherever he goes. And he's in images, and a lot of the branding is Niko. And the last collection was called Love Niko Collection, which we launched on Valentine's Day.

GUNEWARDENE: We've treated many injured dogs and bring home quite a few of them. Some of the dogs that we treat, once they're better, we put them back into the place where we found them, as long as they're well and can go back.

CHURCH (voice-over): As Otara works on a second clothing line, she finds her message is spreading.

GUNEWARDENE: People are very enthusiastic about Embark. We can always count on people to join us, to help the projects that we do.

CHURCH (voice-over): She's not just changing the lives of the dogs, she's reintroducing Sri Lanka to man's best friend. Rosemary Church, CNN, Atlanta.

(END VIDEOTAPE)

ANDERSON: Aw, sweet. Wrap up our week taking a special look at pets. I want to hear more on the -- bring you more on the story that we did earlier this year, China's use of cat and dog meat. Alexandra has this to say. She says, "Eating cats and dogs seems crazy to us. But take a step back. What about chickens, pigs, and cows? What's the real difference?" she says.

Keep your e-mails coming. I'm sure you have your own thoughts on this subject. Cnn.com/connect. We will be back in a couple of minutes, right after this.

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ANDERSON: The sights and sounds of ComicCon International in your World in Pictures tonight. It's the world's largest comic book, sci-fi, and fantasy convention. And it is all happening in San Diego in California.

First up. Two persons all dressed up in their Star Wars regalia and ready to go, but they've got some competition from the Mad Hatter. Diego Macardo (ph) came all the way from Tijuana in Mexico, and he brought his hat with him.

And don't count out the Transformer making a splashy and very towering entrance at comic.com.

That is it from us here on this show. I'm Becky Anderson in London. That is your world connected this evening. "BackStory" is up next after this very quick look at the headlines.

A passing grade for most of the 91 European banks subject to the EU's financial stress test. Only seven banks failed, five in Spain, the other two in Greece and in Germany. The test is aimed at preventing a future credit crisis like the one that sparked the global recession.